Franchising Needs Better Government Regulation

Discussion of legislation and political advocacy regarding franchising.

Is Crapola a new kind of margerine or BS?

I am very serious about helping existing and future franchisees and if crapola will do it, I'm for spreading it. It is because I am a very responsible person and do feel I am my brother and my sister's keeper that I try to spread the word.
I am trying to put the blame where the blame belongs. I want my country and my government to nourish deocratic principles and do the right thing.
If this interfers with your sales pitches ----I'm not at all sorry.

on May 6th, 2007

Hard to Get Up after you have Died by Hanging out with Wrong ZOR

ZORS are not in business to make money for ZEES. This is a myth. They prefer that you make money but it is not necessary to their survival. They count on the fact that the financially dead ZEES will not be able to mount a good offense because they won't be able to afford an attorney, or to lobby their government.

on February 18th, 2008

Item 20 Ranter rants the same rant once again...

What have you done to further your Item 20 cause other than be an armchair antagonist spewing vitriolic anti-franchise rhetoric? 

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on February 3rd, 2008

Franchisors are drowning kittens in Chicago

There are reports that prominent franchisors and their attorneys are stealing kittens from franchisees and drowning them on street corners in 55 gallon drums. These unsubstantiated reports cannot be verified and there are no witnesses or kitty cat cadavers, however since it is something that we all know a franchisor would do we are to treat it as fact.

on July 6th, 2007

Re: Why are you so bitter?

"you have no objectivity whatsoever."

talk about the pot calling the kettle black. you have the biggest axe to grind of anyone on these forums. try talking in facts instead of rhetoric and perhaps you'd be given more respect here...

on September 4th, 2007

First to start company are sacraficial lambs!!!!

This happened to us. Let us fail and they wanted to take it over without paying for the build-out or the equipment. We are still paying for all of that and they take over with just the lease and operating expenses. If we only had that we would of been a success. So never get in a franchise at the beginning for you will be a sacraficial lamb. Right? The company takes over the failed stores for pennies on the dollar. This is a legal scam? Right?

on February 3rd, 2008

Sacrifice of Individual Rights to Public Policy--PATRIOT LOAN

All of these pro-franchisor people who make their living in the industry are really frightened that the REAL RISK of a frnchise purchase might be revealed to the public if franchising is regulated as well as Securities are regulated by the SEC.

They don't care that our government who puts our troops at risk to protect foreign policy that protects our liberties, to include capitalism, will NOW put our troops at risk to further the interests of franchising and the public policy of obscuring the real and true risks of purchasing a franchised business opportunity.

They certainly want no discussion about the failure of both the federal and state governments to require franchisors to disclose the real and true risk of the franchise they are selling to the public to either the government or the buyers of the franchises.

They lean on the "due diligence" issue while both they and the government know that many investors trust in the appearance of government oversight and will not do killer due diligence to discover the actual failure and success rate of the franchised business plan.

The government offers the list of refere4nces as a "due diligence tool" to hide their failure to make the franchisors disclose the true and actual risk of the investment.

Ugly public policy.

on July 7th, 2007

Staff Grateful to Franchisees

Guest wrote, "they maybe one of he best places to work for but its all at the expense of he franchisees"

Then the Dwyer Group staff should be thankful to its franchisees for helping make Dwyer one of the best places to work for in Texas.

With luck, happy staff might be able to return the favor.

on February 18th, 2008

I have read it...And how many times can you sell a Popeyes?

But even you Bob are not out to destroy franchising, however the guest poster - Item 20 Ranter is.

The Item 20 Ranter has been asked to name 5 franchise concepts worthy of consideration and cannot seemed to choose 5 out of the thousands avaiable which of course includes AAFD accredited franchises. 

The Item 20 Ranter is a failed UPS Store franchisee who made some bad choices and has an axe to grind.

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on January 1st, 2008

Wrong Article

WRONG Article!  The quote which you reference came from "Death by Government Protection" and not The Onion.  Nevertheless, can it now be assumed that you are in support of LESS governmental regulation?

I do not want nor do I need the government to protect me from me.  It IS NOT indefensible to oppose governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.

Please now join me in supporting the traditional American belief in individual rights and responsibilities that have led to the creation of the wealthiest nation in the history of the planet.   

Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!www.fransynergy.com

Posted by FranSynergy on July 7th, 2007

Dirty Little Secrets of Franchising ----Transfer of Liability

This would be a best seller if people like Richard Solomon would really tell all of the dirty little secrets of franchising.

But, they are hidden by agreement under public policy and an attorney would be committing suicide if he revealed them in a book unless he was thinking about moving to the UK and opening a Pub.

I guess Richard is telling Debby and Richard that even if you sign contracts that were fraudulently induced, if you can't prove this under federal law governing franchising and the franchise agreements, you are just a sacrificial lamb and to "get lost" until you win your case.

Let's change the subject and talk about the dirty little secret of the franchisors transferring liability to you for the operation of your "own" business, that they absolutely control because they control your assets for the term of the contract in success and failure. It is a myth that you will own a business of "your own" because you are owned by your brand corporation franchisor when the franchisor controls your tangible assets in both success and failure "till death do you part" ----and the death of the first-generation franchisees so often contributes to the continuing life of the franchisor in "managed churning."

Let's talk about the liability issues of the franchisees who not only bear all of the risk of building a unit to WEAR the brand name but who also bear all of the risks of operating the business under the proven business plan that was branded.

Look at the Sona! They get a slap on thw wrist for selling a flawed concept to the franchisees because they were just incompetent and negligent and the franchisees are stuck with the liability when they are sued by their customers.

Look at UPS. They were smarter than FedEx or beat them to it and decided that rather than have a division of UPS that would operate The UPS Store, it would be much cheaper and more profitable for them to get MBE as cheaply as possible and then transfer all the costs of overhead and liability to the franchisees who would work harder and cheaper anyway because of the lure of profits. I'm sure that they were aware of liability of the shipping of pornography and hazardous waste through the mails when they made their decision to buy MBE and transfer this liability to franchisees.

As Paul Steinberg said, why would any corporations who could franchise operations invest in their own divisions if they could get it done by using the venture capital and labor of franchisees?

Tongue in Cheek! Why doesn't FedEx sue UPS for unfair competition ----i.e. looking around for a deal on a shipping-mail-package franchise that they could get CHEAP and then cutting a deal where they cut FedEx and the other Shippers out of the pie while stiffing the unsuspecting buyers of The UPS Store and the older owners of the MBE Stores with a lousy and flawed business plan, and then competing with them as well.

I sense Richard Solomon's contempt for anyone who would be stupid enough to buy a franchise to begin with and we notice that he only thought about becoming a franchisor with his beloved "Muldoon's" but he couldn't bear the thought of his "one of a kind" saloon becoming a Ruby Tuesday's and he, of course, would have been really tough on his franchisees and he doesn't need the money anyway!

on July 7th, 2007

There is nothing wrong with that

I personally would have no problem with a private cause of action under the FTC Act, although I can understand that this may in turn bring up concerns about clogging the docket; however Paul is correct in that most people are under the impression that the government will provide mechanisms or remedies that will appeal or otherwise cater to their timetable and sense of justice.  As it stands the FTC does not appear to be the be-all-end-all that most people desire it to be, with respect to FTC's infrequent regulatory action and infrequent Rule updates to reflect current economic or legal trends, yet most people spout the Rule as the basis for the inevitable legal success they may have against the franchisor for violations, i.e. "so-and-so franchisor violated X provision of the FTC Rule thus I will win."

I am all for better franchisor disclosure as I think it will inevitably strengthen the relationship for both franchisor and franchisee.  It would conceivably motivate franchisors to be fairer in the treatment of their franchisees.

Although I have also followed the ULCC proposals with some interest, do you have other references to US laws modifying as a result of Canadian changes?  I am not being nationalistic or sarcastic, I can honestly think of no examples and would actually be interested in such trends.

 

Posted by Bubba Sparky on May 17th, 2007

Open to suggestions, eh?

A good case can be made for permitting a private right of action under the Franchise Rule. But given that the law currently does not so provide, these franchisees that focus only on the Rule do themselves a disservice.

At best, they fail to pursue common law and state law claims. At worst, they bring a frivolous suit in federal court which promptly gets tossed out by the judge.

I name no names, but as you may know, some law firms tell zees to fork over a hefty retainer so that they can bring suit on behalf of franchisees against the franchisor, alleging Franchise Rule violations. Not only are they wasting the zees money, but such decisions wind up being seen (incorrectly) as victories for the zors when in fact they are simple dismissals on grounds of standing and not addressing the underlying actions of the franchisor/franchisee relationship.

I had someone come to me a while back and he wanted to bring such a suit in the SDNY; I told him that unless we could make a sound argument for such a cause of action, he might as well buy some lottery tickets in lieu of the retainer. I did some brief research and couldn't come up with anything plausible. The zee told me that another attorney told him to bring the suit even though it would be dismissed since it would pressure the zor to cough up money; to me that borders on unethical and arguably sanctionable conduct--if the attorney were to actually admit to this in front of a judge, he well might be sanctioned, and properly so.

If anyone can come up with a claim under the Franchise Rule which has a chance of surviving a summary judgment motion, I am all ears and open to suggestions... even from Canadians, eh?

on May 17th, 2007

Blame Canada

"If I am right (about Ontario's private cause of action for franchisees and an enumerated list of mandatory disclosure of all material facts that the U.S.'s States now lack), then you can indeed 'Blame it on Canada'." - Webster

Here is Hollywood explaining Webster's reference of "Blame Canada", bringing a little culture into our rather drab, legal discussion. This Oscar Ceremony skit takes inspiration from the lofty animated television series, South Park. (Notice the skit's reference to "They killed Kenny" and the juvenile South Park way of speaking, e.g. "fart and curse".)

Didn't know I was such a fountain of knowledge when it came to culture, did you? Oh, and I think the commentators are speaking German.

on May 17th, 2007

Yes, and someone's court records were published to intimidate!

Absolutely, this was a form of stalking a poster but we must accept the apology and explanation of Fran Synergy who wears a big shoe size that sometime ends up in his mouth.
We never did find out who was responsible for publishing the court records of one of our esteemed posters, or what they thought were court records pertaining to Paul Steinberg, to discredit him. .
Did Mr. Blue Mau Mau ever discover who was responsible for this act and assault on the Blue Mau Mau site?

on March 27th, 2007

Reference List Item 20 UFOC

In the old guide on Franchising put out by the Federal Government, re current and ormer franchisees, they indicated: "Be aware that some franchisors may give you a separate reference list of selected franchisees to contact. Be careful, those on the list may be individuals who are paid by the Zor to give a good opinion of the company."

Does this advice indicate that the government is aware that this can happen and that it is not in any way or manner against the law to do this? Doesn't this warning indicate that the government is aware that Item 20 information and references are an imperfect method to investigate the "risk" involved in purchasing the franchise, and, also, that they are aware that Item 20 presents an imprecise, incomplete, and misleading view of the failure and success of the business plan that the government indicates that it is regulating to protect the consumer.

Will the new Item 20 requiements make a difference? Although, references who have signed confidentiality agreements will be disclosed in the UFOC and will still be silenced, will it be possible that those who haven't signed confidentiality agreements will be paid to give good references ----and this is not against the law?

on May 18th, 2007

Spying On Those You Do Not Agree With

"Innocent discovery of fact"?? "Better left known (by you) than stated"??

Why do you have to visit Tinker to discover fact?

I do not mean to turn on you but your words are spooky. You and Tinker argue frequently online. Then you put effort into finding out who and where Tinker works, then drive over to Tinker's state to see the store.

FranSynergy, this is according to your own explanation. Strange things are coming from your posts today. I suggest take a moment to rest.

And I hope you are not planning a trip to Canada any time soon.

on March 27th, 2007

No Barriers

Those are pretty scary posts meant to intimidate Kathy Sierra and stop her blog. Succeeded too. Sad.

I think Mr. Blue said he automatically deletes any hints of a threat on the site, and something about the rights of anonymous posters being very low on the totem pole.

What about your blog? Your point-of-view can be controversial. What do you do to guard against online threats and intimidation? I see no barriers preventing this from happening on FranchiseFool.

on March 27th, 2007

Material Change and Time for Due Diligence

Les;

I would insist on a period of 6 months minimum due diligence.  It should be a learning procees; it is not like buy a security which you can dispose of it in liquid market.

Under the FTC Rule updates to the FFD are:

"The Rule sets forth three updating requirements. First, the information contained in a basic disclosure document must be current as of the close of the franchisor's most recent fiscal year. After the close of each fiscal year, the franchisor must prepare a revised disclosure document within 90 days. 16 C.F.R. § 436.1(a)(22).

Second, a franchisor must also update its disclosures to reflect any material changes. Any such update must be prepared within a reasonable time after the close of each fiscal year quarter. A franchisor, however, need not prepare an entirely new disclosure document each time such a material change occurs. Rather, a franchisor may place any new disclosures in an attachment to the basic disclosure document. Id.

Third, the Rule contains specific updating requirements if a franchisor makes earnings representations. In addition to the above noted updating requirements, a franchisor must notify prospective franchisees of any material changes in the information contained in its attached earnings claim document prior to entering into the franchise relationship. 16 C.F.R. § 436.1(d). See Final Interpretive Guides, 44 Fed. Reg. 49966, 49970 (August 24, 1979). For franchisors using the UFOC format, Item 19 is the functional equivalent of an earnings claim document."

This is why I am not verly bothered by TIF's response to the hypothetical problem: I will get the relevant information in the next quarter if it is material.  Probably work out the same in Ontario.

But it does show you, indirectly, the length of time that the disclosure laws expect you to take in researching your purchase - at least 3 months. 

Now the problem with an empty 19 is much more problematic. 

Michael Webster PhD LLBFranchise News

Posted by michael webster on February 5th, 2008

The Soloution to Disclosure

Okay! If I buy Les Stewart's for "privately-run and publicly-supported expert software systems (i.e. reputation decision making models)that will deliver improvements to the disclosure process, how does this come about?

The government, the SBA, has FranData to support the existing ineffective disclosure mechanism and they can afford to contract with FranData. The snapshots provided by FranData that do not take into consideration the past or present performasnce data of the individual franchise units presents an incomplete and inaccurate picture to the potential buyer of the franchise. It is obvious that FranData is in business to push franchising and the Franchise Registry.

The artifice of imprecise Item 20 makes it possible to present this false snapshot to potential buyers of franchises. Always, the possibility of "inventive" and "innovative" statistics produces the appearance of truth but the lie lives to do its work because the whole truth is not disclosed.

The arrogance of Item 20 of the UFOC that pretends to give potential buyers the information that they need to do their due diligence is not understood by the naive potential franchisee who trusts his government. Why shouldn't the franchisor be required to disclose the known statistics concerning past and present unit performance of the franchises that are being sold to the public? Obviously, franchisors are protected when this disclosure is made by current and ex-franchisees and not by the seller of the franchise.

We all know that past performance doesn't necessarily predict future performance but it is all we have to determine the odds of success or failure and why should potential franchisees be deprived of this information?

on February 5th, 2008

Material Facts? Failure Rate a Material Fact?

Michael! Is the Failure Rate of the franchised business plan that is "knowable" to the franchisor. because of the provisions in the contracts that mandate that ZORS must approve the transfer-sale of a franchise and appove the distress asset-purchase agreement between the buyer and the seller, a material fact under Canadian Law?
I really hope that our country gets a superplus FTC Rule ---a private cause of action, an enumerated list of mandatory disclosures, and a basket clause requiring the disclosure of all material facts.
I also hope that both of our countries will disclose the material and important fact of the failure or the success rate of the franchised business plan.

on May 18th, 2007

what a punk

Tinker:

Dale stands revealed: he is a punk.

FuwaFuwaUsagi

on March 28th, 2007

Franchise lawyers

I agree, Paul! But, the FTC knows that potential franchisees in the $100,000 to $500,000 franchise range who are looking for a job and income, etc.. do NOT look for negatives and that they will not generally pay an attorney to look for negatives or to read the UFOC if this means $1500 or $2,000 MORE that they have to pay out to get started in this "business of their own." As you and Richard Solomon have said, the average attorney is between a rock and a hard place and has to eat. If the client just wants him to read the contract and this is all the client is willing to pay for, does the attorney have any legal duty beyond just reading the contract and pointing out the meaning of some of the terms?

The FTC knows this and even says "If possible, show" to an accountant or an advisor. It is this use of the "nature of the human being" by the FTC to bring the uninformed and naive ZEE to sign the malicious contract of adhesion that I find so undemocratic and immoral.

I read your "Beguiling Heresy" often and I know that you have stars in heaven. I am reading Gangs of America now by Nace and this is helping me with my education on how the law has been caputured by the huge corporations who use their civil rights and personhood to remove the rights of individuals in society and to undermine democratic principles.

on February 21st, 2008

The right Questions

Nick,

Exactly: It is discernment that is lacking. While I have great confidence in your standards of conduct based on your character, I wonder if franchising would be more sustainable if there were less experts and more numbers involved?

YOU VALUE WHAT YOU COUNT
We require an automobile driver to pass a test, have insurance and even use seat belts (in some areas). There is a registry for motor vehicles.

Every cow is tracked for mad cow disease.

v.

Funny how franchise investors are not.

Les Stewart

on February 6th, 2008

Re: And the one who dies is the zee!

AMEN!

on February 21st, 2008

You make no sense guest

You state: 

'Are you sure you aren't a paid agent of those who want to prevent new purchasers of franchises from knowing the true and actual statistical risk of success or failure as reflected by the SUCCESS or FAILURE of first generation franchisees?

Under SEC rules, these statistics would have to be disclosed.'

Since you've done all of this research on the SEC, can you point me to the SEC filing for McDonalds, Burger King, Panera, etc. that shows the Success or Failure of first generation franchisees.  They do live by SEC rules.

on September 5th, 2007

TIF: an oxyMORON

Again, making an assumption this person is his nemesis, the Item 20 Rantor, and continuing his hard-on for this individual. Didn't I tell you if your hard-on lasted more than 3 hours, go see a doctor? Better get going!

The FTC, operating on a shoe-string budget vs.the zealous lobbying efforts by the franchise industry - it's simply no contest.

And maybe, I'M the dreaded Item 20 Rantor, or maybe not - we'll let your hard-on decide.

on January 6th, 2008

No worries Item 20 Ranter...I can help you!

 Item 20 Ranter posts - "Why aren't you and TIF out here recommending the Dwyer Group Franchises as an example of highly successful vehicles for investment for our veterans under the Patriot Express Loan Initiative. You have the opportunity to disprove all of my statements but you always want to indicate to the readers that it would be impossible for franchisors to disclose the failure and success rate of their first-generation franchisees.

This worries me!"

I think veterans have the same capability and responsibility as the rest of the public to make their own choices and to perform due diligence. I personally don't have anything positive or negative to say about the Dwyer Group concepts.

And once again I ask you where are your qualifications for opining on the evils of franchising and were you or were you not a failed franchisee of The UPS Store?

The Truth shall set you free, I promise!

TIF

Posted by Truth in Franchising on September 5th, 2007

You just don't understand!!!

The average person does not have the capcity to understand legal documents. It is so dry and you fall asleep. The UFOC is very big. I read parts of it but insisted our lawyer read it. It wasn't cheap either. I guess you have to do due diligence on lawyers too. If we had to do due diligence on everything and we should. Our lives would be doing nothing but due diligence. I agree in buying into a franchise due diligence is absolute must. I wish I had someone like you to read our UFOC. Or Solomon. I am sure you would be a better choice. I called 30 lawyers and finally someone directed me to a franchise lawyer that is well known in Bellevue, Wa. I plan to do my due diligence on him too. He is so busy with so many cases. So he must be good. My real estate lawyer said busy lawyers are good. I plan on carrying it further. But I can't let him know what I'm doing because he is so confident. (Arrogant also!) I don't want to get him mad. DD will always be in my mind. I managed to live 53 years with no need of a lawyer. I consider myself blessed.

on February 22nd, 2008

SEC Itself Suing Big Retailer

I see in today's news that the SEC is suing Saks Inc., a large retailer with access to legions of lawyers, for reporting inflated earnings for various years. Not shareholders.

Do you think that the FTC will take on major franchisers for misstatements in their disclosure documents?

on September 5th, 2007

Sorry, but

...only deal locally.

But if you drop me a line thru BMM (use the link at the bottom of the post or click on my profile and use that link) or direct ([email protected]) I'd be happy to drop out a copy of our article which discusses many of the things to be careful of when buying a franchise.

In terms of fees, it depends on your local market. But what you were quoted is not really out of line for a flat fee. If you have found someone who knows what they are doing, it's not bad.

The problem is that a lot of attorneys don't take the time to become aware of aspects of contract and commercial law which are peculiar to franchising, and no matter how cheap they bill the advice is not worth it. Also, don't neglect matters such as lien searches, tax authority notifications, and the like. I have seen a depressing number of attorneys who don't bother to do basic legal work common to any business transaction.

This is another reason why I'm not a big fan of hiring an attorney outside of your local area. If you are in my area, I can tell you about various state and local law as well as some of the "street smarts" which I have gained from experience. But if I were doing a deal in Chicago I would not be as valuable to you, and might even miss items which a local attorney would automatically attend to.

I really do think that if you go thru sites such as BMM and FranchisePundit and read our article, you will get a good idea of the questions to ask as you read through the UFOC and Franchise Agreement. It is not a substitute for good legal advice, but when you speak with an attorney you will be able to have a productive conversation. Best of all... its free.

Paul SteinbergFranchisee Attorney, New York City, Ph: 212-529-5400

on March 29th, 2008

Entrepreneurs are Beautiful! Scam is kind of like

It hasn't been hard for the IFA and Entrepreneur and the FTC to convince those people who are looking for a job and income to believe that they are "Entrepreneurs,"

It's kind of like all those crooks who sell those courses to be a model. They tell you are beautiful and that you have the "right stuff" and that they have the "right stuff" to help you to sell yourself and be a model and make money.

The government's (FTC) weak disclaimers are no excuse for their failure to require franchisors to disclose the true risk of investments in the franchises that are being sold to the public.

It took them ten years to do nothing for the franchisees. The new RULE is just more of the same and the franchisors are still not required to disclose the known success or failure rate of their first generation franchisees who provide the capital and labor to build the units that wear the brand names.

I don't understand! Iw this why the FTC comes down hard on those who can't back up earnings claims and who make false success statements. Is this a subject that is just not going to be talked about in the UFOC's? Is the failure to address the material risk of purchasing the franchise as demonstrated by the success or the failure rate of first-generation frasnchisees essential to the DURABILITY of the Franchising in the economy?

Does the FTC believe that the risk must be obscured from new buyers in the market place because if the true risk were known, this would inhibit investment in franchising, and adversely affect the economy?

on August 24th, 2007

Mr Tactics says "Stop the Insanity" - please!

This is a pretty incredible post - I think it sums up the issue for many prospective new franchise owners. The note in question states:

"The attorney I talked to last week wanted $1,500.00 just to review it! I thought most of the agreements were pretty much the same. I like Submarina and I like their system. The franchisees say they are happys. #1500.00 to read a contract seems crazy."

1. This is from a person preparing to invest/spend tens of thousands to open a franchise, sign personal gaurantees for many times that sum, and can't see there way clear to invest $1500+ to a competent franchise attorney. This is exactly the type of person that always complains the loudest when everything goes south. By the way - go get a an experienced franchise accountant to do some basic financial projections for you as well. have them show you cah flow projections, a return on onvestment analysis and five year projections before you plop down your life savings.
2. I can't believe that anyone is looking to open ANOTHER sandwich shop. You would think the fact there are already more than 25,000 Subways, 5000 Quiznos and a few thousand other sundry and assorted brands all selling essentially the same product would be enough! Never mind the fact that you probably could not have picked a weaker brand to invest in.
3. Go open a lemonade stand, something, anything that won't wipe out your life savings if/when things don't go exactly as planned. Get some basic business common sense under your belt first. Work your way up the food chain and learn the lessons you apprently need to learn while the mistakes won't kill you.
Please take this advice to heart. Otherwise just send me the money. I will send it to a worthy charity. In the end you will still be out the cash, but it will be quick and painless, and the world will be a better place for it.

on March 31st, 2008

Ariel ----from Item 20 guy

Thanks, Ariel! If I have saved just one person from a bad investment or enabled one person to find a good investment in a good franchise opportunity, all of my posting is worthwhile.

A good investment in a franchise from my viewpoint involves one in which there is profit as well as a job for the owner with a market-equivalent salary for the hours required to operate the franchise, A good investment in a franchise is a franchise whose first-generation franchisees generally make it for the full term of the ten or fifteen year contract, or who provide profits early enough in the game that the franchise can be sold at a profit.

A good investment is a RARE opportunity and can only be found through a search with seasoned and honest franchise attorneys who has no conflicts of interest with brokers or advisors, etc... The UFOC offers no protection for prospective investors and instead provides cover for the franchisors to sell their franchises with very high failure rates to the public.

The SBA Franchise Registry has registered many franchises that have high risks of failure for first generation franchisees that do not show up in the SBA Loan Default statistics and this misleads the public and the banks.

I am happy that you took a good look at franchising and decided to stay in your job. Were you, by chance, eligible for a PATRIOT EXPRESS LOAN from the SBA?

on September 7th, 2007

Why Prospects are Morons

Guest writes: "The attorney I talked to last week wanted $1,500.00 just to review it! I thought most of the agreements were pretty much the same."

You are a business moron, probably a nice person.  But a moron, nonetheless. 

First, a review of the contract is not reading back to you the contract. Minimally it involves a review of what you think the deal is, what you are relying upon and whether the differences are so large that you should get out of the deal.  Second, even if you are not entitled to a UFOC, you need to review it to get the relevant information out of it.  And there are about eight other steps.  By all means, please risk 500k because "you like their system and the franchisees say they are happy"

Paul shouldn't do the work for less than $4,000. Canadian. 

Michael Webster PhD LLBFranchise News

Posted by michael webster on March 31st, 2008

Coffee Beanery Case

While I have never understood the mentality of thinking that a very limited Rescission from a State Regulator and then a zee suing is two bites of the apple, I can tell you that what happened in Md. does not come close to one bite, let alone two.

R&D have not intended for anyone on BMM to consider sharing thier story as whining or crying. Anyone reading this story and most of all Franchise Attorneys, should be able to read this case and understand the need for Reform.

Read up and understand this case:
1. R&D had an attorney over a year before Cantone gets involved.
2. R&D are the only zees in Md. who file a complaint with the AG
3. There are only 2 cafes in the entire State of Md.
4. Cantone has been the force behind the "2" bite theroy. He has given testimony before Congress in the hopes of Congressional backing for "2" bites.
5. The second cafe owner in Md. goes to Cantone to file a complaint and asks "Do you think I should get an attorney?"
Canotnes answer: "No because you will benefit from what wver Maryland does."
6.The second cafe owner takes that advise, right or wrong for being that trusting of his State Officials, and is now close to bakrupcty for unpaid rent, which he is still responsible for.
7. Cantone for the first time decides that anyone who takes THE DEATH WARRANT RECISSION, will have to waive the right of private action. Knowing Cantone, that should be a red flag.
8. R&D have an arbitrator appointed in August of 2005, even though they had not seen an arbitrator list for selection until November of 2005.
9. This is the first even for the AAA
10. Have you ever had an arbitrators list for selection along with all the bio's, but no Disclosure?
11. R&D were denied every request for an explation from the AAA about the selection or the Disclosure that was not given to anyone until 1/2006.
The Disclosure received on 1/2006 was dated correctly, except for the accountant. That Date Was 2/15/2005. A full year in advance
12. The Arbitrator lied
13. The arbitrator Discloses that the attorney defending CB had appeared before her before. HMM, remember that disclosure dated a year in advance? Connection?
14. Many letters from R&D's attorney demanding more information concerning this Disclosure as of this day, are ignored
15. THE OUTRAGEOUS DECISION.
16. The FA and the Arbitration Agreement had been amended by both sides that violations of MFRDL would be excluded from arbitration.

This is not a case about feeling bad for a zee who has lost everything. They have alot of Company. They are only 1 of more then 100 in the CB System

This is a case that should make every attorney in the DD Business worry about the outcome one of thier clients may have.

This is not Justice. This is in itself the biggest violation of the entire case.

All the laws were ignored and broken. You may not like R&D, but you should like even less the miscarriage of Justice that has unfolded before all of you.

I think they are courage and I respect them for continuing to demand that Justice Prevail.

Anyone of you who think that your Destiny may bring you before our Judicial System, better take a long hard look at what can happen.

Remember this was The Coffee Beanery for God's sake
How many innocent people have suffered this kind of "Justice" At Least R&D are strong enough to go and continue to screm:

HELL NO WE WON'T GO

on February 22nd, 2008

Bob, not necessarily true? How about a lie...

The Item 20 Ranter is so stupid he doesn't understand the top ten list is made up of franchisees that have built hundreds of units. 

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on November 9th, 2007

Yes and No

The zor is never going to admit fault, because the minute it does, the suits will come flooding in from every other zee.

The due diligence process does not seem a relevant subject when things go well in a franchise.  It is only when they go bad that the UFOC is dragged out of the desk drawer and scrutinized for failures to disclose, etc.

Zors have thousands of excuses they can use - the economy is bad, there is new competition, gas prices are too high, and, yes, they will tell you that you are a bad businessman and/or franchise operator.

When things do go bad, you find out that you agreed to: 1)not operate a business similar to that of your franchisor, 2)assigned your location (and phone numbers, etc) to the franchisor, 3) and you may be responsible for the zor's future loss of royalty income, as well as any borrowed money, personal investment you made, etc.

I think what attorneys and franchise "consultants" need to focus on  is what happens if things go bad in the business.  There is already a lot of focus on the front end on "dreams", so let's also focus on the reality of franchise "nightmares".

Franchisees in trouble seem to complain that they "did not know this, or did not know that", but there is a lot of literature out there, including this blog, that warns them of the consequences of a franchise failure. Just a trip to Barnes and Noble's business book section can be an eye-opener - you'll find lots of titles on things to look out for in buying franchises.

I don't personally think the government can ever do enough in a dated disclosure agreement to protect franchisees.  Hiring experienced attorneys that know the system, and the downsides of the system can give you the knowlege you need to assess the high cost of a franchise failure.

Remember that, short of true fraud and misrepresentation by a franchisor (which are hard to pin down in a court), there are many other reasons franchises fail - and the franchisor can use this myriad of statistics to show that it was not at fault in your demise.

The only way to mitigate the damages of a possible failure after you sign the agreement is to negotiate the future as much as possible as a part of the agreement .  This has to be done before you sign and hand over the check.

Those of you that are already in, and miserable, do have my empathy and my understanding. 

on February 7th, 2008

Re: Item 20 Ranter continues to avoid anwering questions

go get'em dumb dumb.

grrrr....

TIFIAI

on September 8th, 2007

Everyone should want BARGAINED contracts to be enforcible

Franchise Agreements are not freely bargained contracts. The government UFOC presents the franchisor's contract as UNIFORM and STANDARD. Government regulatory policy as established by the RULE of the FTC enables the franchisors to trick franchisees into signing these unconscionable and unilateral contracts that give the franchisors a license to steal.

The prospective franchisees believe that all franchisees stand in the same legal relationship to the franchnisor, as represented by the UFOC-Contract terms. They don't bargain these contracts because they don't understand that they can be bargained (doubtful)! The only way they can get at those "profits" promised by the franchisor who will "award" them a franchise is to sign the unilateral contract.

I'm sure the courts are aware of the constructive fraud produced by the sales process that involves a combination of government disclosure of a unilateral contract together with the contract that, when signed, protects the franchisor 100% from anything that is said or done outside of contract.

When the three branches of government get together to stack the deck, the outcome is certain. "Oh, what a tangled web we weave, when first we practice to deceive."

We need some truth in franchising! TIF should put his truth where the sun don't shine!

on November 10th, 2007

Contracts And Quiznos

In most cases I do - but a decision by a buyer to sign a contract with a group of no-account, immoral, lyin', thievin' scum shouldn't necessarily be just a lesson for the rest of us. Contract law isn't supposed to be used to take advantage, to "legally" steal with no penalty. It has evolved that way because "smart guys" like the Schadens decided to use it that way. At one time in the past a handshake was all it took for both sides in an agreement to get a square deal. It's because of scum like Q that it takes a battery of lawyers on both sides to get a fair agreement.

on November 10th, 2007

Why are you so interesting in who I am. Sending the Goons

TIF ---you never offer anything substantive to the discussions and just attack me and want to know who I am? Do you want to know who I am so that you can silence me.

Why don't you refute my rantings with your ZOR propaganda? I realize it is hard to refute the truth without resorting to lies and I do respect your integrity.

If you really sell franchises, why don't you get out here and push some of your brands that have low failure rate of first-generation franchisees and that produce profits, instead of franchises that are just a lousy job and a three or four or five year journey into failure.

on September 8th, 2007

Industry With Highest Earnings

"But Les tell me what concepts do you think are strong franchise investments?" - TIF

Les is involved in lawn care - so one would assume that is where his entrepreneur instincts thinks the higher earnings are.

From the sound of Scott Shane's blog above, might I venture to say the industry with the highest profits for entrepreneurs is:

  • IT (Computer repair, computer manufacturing, cell phone, information, etc.)

The Michael Dell and Bill Gates entrepreneurs of this world will find that a business here gives room for higher profitability. So bringing it home to a recognizable franchise model, a place to look for high earnings would be:

  • A computer repair franchise
  • Office IT Service franchise
on January 19th, 2008

you go first.

remember that question has been in your court now for months and you refuse to answer. why should Mr. Stewart succumb to a litmus test that you yourself won't take?

you know the answer, i know the answer, and we go round and round again. TIF, i think it's that time to sell the glass van down by the river, too many stones to throw down there on the riverbed...

sleep tight.

on January 22nd, 2008

Carman the Item 20 Ranter is Right!

Paul is an idiot and most often wrong.

I am swayed by Carman's eloquent and sage argument and for the sake of democracy, citizens and American business I hope the government crushes these franchisorconquistadores once and for all and makes it safe to franchise.

Additionally I do not want to hear any crap from the likes of Solomon or Webster two equally inept miscreant merchants of the fallacy of due diligence.

baci mi culo bambino!

on April 1st, 2008

David French wipes floor

Guest writes: I think Paul Steinberg is wrong! The inexperienced potential franchisee doesn't understand the implications of the "no reliance" clauses and relies on the visibility of the franchise in the FDD and the community, and the knowledge that all of these "standing" brand units have signed the same franchise agreement.

Umm... did you bother to read our Penn State L.R. article?

Those are the same points we made, sourced to empirical data and case law from around the world.

Assuming, arguendo, the facts to be true: What do we do about it?

You may not want to hear this, but jurists, legislators, and voters all engage in weighing the costs versus benefits of government intervention. Unfortunately we see too little of that on BMM, not to mention in Washington.

That's why David French wipes the floor with zees: at best, zees whine to their Congressman like he's their Momma (& most never contact their Congressman), so when IFA is on the hill with their bogus stats and PAC money, the franchisors appear as the (wealthy) voice of reason.

The IFA doesn't win because they have a better lobbying effort, they win because franchisees have no lobbying effort. Whose fault is that?

 

Paul SteinbergFranchisee Attorney, New York City, Ph: 212-529-5400

on April 1st, 2008

One other request - absorb before you respond...

Guest, here we go, right out of the chute.

You make the following comment: "When you start with the premise that there is nothing wrong with government regulation, you are just applying bandaids and ignoring the deep and infected wounds of those who are injured by franchising and destroyed financially and emotionally."

Now, who suggested that there is nothing wrong with government regulations? Not me. In fact, I said exactly the opposite in my last sentence. The "government" comment was made by Mr. Blue and I doubt it was referring to my observation, but rather to a new area he has established within his site.

So, please go ahead with a reflective comment on the government if you wish as I want to change the recent decisions as well.

And just for the record, no, I don't "sell happiness", but I trust that a fair evaluation of facts and options will lead to a better state than despair. So, I do my best to examine the facts with clients, OK?  And last, if you're still not satisfied, give me a call. The number is on my website.

Posted by Nick Bibby on September 26th, 2007

Re: Re: The Dwyer Group Named Among Best Companies to Work for i

Don Dwyer started this franchise businees in Waco. he was just a cheap, sleezy, glorified salesman that would sell his family for a buck. And the management team in Dwyer should go to jail for what they have done to the ZEEs over the years.

on February 23rd, 2008

Agree and disagree

I'll agree that an "inexperienced potential franchisee doesn't understand the implications of the 'no reliance' clauses and relies on the visibility of the franchise in the FDD and the community, and the knowledge that all of these 'standing' brand units have signed the same franchise agreement".

I'll agree "that the [extremely] naive franchisee depends upon the integrity of their government and relies on their government to protect them."

I'll comment that being naive and depending on government can both have adverse consequences--but if you're here, you know that already.

I'll disagree that this was some big conspiracy.  It's more a case of some well intended legislation/regulation being turned on its head.  That happens a lot.

I do think there is sometimes hope for those who signed BS merger clauses and disclaimers.  Those are really just waivers/releases which are prohibitted by the anti-waiver language of the franchise laws of some states.

on April 1st, 2008

fairness Arbitration Act

Is a start. This Bill if passed, will allow the choice of arbitration or court. There will be no more MANDATORY arbitrations. I believe that we all should be able to choose. It is a Constitutional Right.

I also believe that it will help in Franchising, because there will be no secrets. The playing field will be more level. Who authors the FA? That is the person who puts the mandatory arbitration clauses in the FA.

As far as the Government being responsible for our investments and changing or adding to the laws and regulations in franchising, I stand behind what I have said. Enforce the laws on the books.

IN Due Diligence you have an opportunity to call and speak to present and terminated zees. If you asd questions in a non threating way you will get the information you need.
The questions should be asked along the line of:

Tell me 3 things that you like about this franchise?

If you could change 3 things, what would they be?

The problem we had and the problem most people have, is that the failure to disclose what is already required is what needs to be enforced.

We called terminated and present zees. There were only 2 who really were not happy.
Not one present or terminated zee was identified as to the concept they choose.

Not one terminated zee was a cafe owner.
If you read the Show Cause or Consent Order you would know that. The entire case was all about the failure to disclose what is already required by law. The fact that Maryland waived the right of private action killed us. This zor knew that the arbitration outcome would favor them.

Read the arbitrators award. She clearly discloses that there was an earnings claim, 3 non-disclosed contracts, failure to disclose a Felony Conviction for Grand Larceny by Kevin Shaw, and then went on to disclose that Maryland was wrong and CB complied with the law.

Think about that. The disclosure laws violated were FTC, Maryland and Michigan requirements. This is the kind of thing that continues to encourage zors to sell flawed or failed caoncepts.

Maryland Franchise Law does not require proof of damages. We would have been happy with a full recision. This arbitrator clearly thinks that if you get shot and you don't, then there was no law broken.

What ever it is you want the FTC or the State Regulators to pass in the way of requirements for Item 20, will, like I said, only be as good as what the zor discloses.

As to my understanding of the UFOC, I had no problem with signing the FA and being comfortable with the information I was provided. It was the information not provided that lead to where we are now.

Arbitration is only the first step in trying to make a difference. The next step will be putting pressure on the FTC and State regulators to enforce the law. Had we not been denied our right of private action, CB would think twice about failing to disclose required information, going forward. Because there was no consequence for the violations CB continues to break Maryland Law. We are calling our State Regulator on this, and continue to apply pressure until CB is stopped. Illinois should set an example of what can happen when a zor fails to comply with the law.

I said in my post that we are the best prospects in making changes needed to make sure that everyone regulator from the Federal to State level is enforcing the laws. It is not going to be an easy job, but if you are serious about making a difference then this is your opportunity.

You have to understand Item 20 could be required just as you dictate, and the zor who is out there selling failed concepts, will continue to violate the Item 20 disclosure requirements. CB opened a brand new cafe in Maryland in August of this year. There was not even a UFOC given to the owner. Why? Maryland has encouraged fraud by letting them off the hook.

on September 27th, 2007